Bush Rejects Israel Loan Guarantees

By THOMAS L. FRIEDMAN,

Published: March 18, 1992

WASHINGTON, March 17 President Bush told key Congressional leaders today that he could not accept their proposal for providing loan guarantees to Israel because it contained too many loopholes that would enable Israel to continue building settlements in the occupied territories. Mr. Bush told the legislators that he was ready to grant up to $10 billion in guarantees on the condition that Israel freeze all new settlement construction in the occupied West Bank and Gaza strip; the Congressional proposal would not immediately mandate a freeze.—
The President said that as a concession, he was ready to allow the Israelis to complete the several thousand homes under construction on Jan. 1, 1992, officials said.

Senator Patrick J. Leahy, co-author of the Senate's compromise proposal, told reporters after a 45-minute meeting with Mr. Bush that he was "very, very, discouraged" and that for today, at least, the Israeli request was "dead."

Senator Leahy, a Vermont Democrat and chairman of the Senate Foreign Operations subcommittee, said he would consult with the Senate leadership to decide what to do next. Pressed as to what his advice would be, he said: "Frankly, I don't know." Bush Reiterates Position

Mr. Leahy and his colleagues must decide whether to incorporate the Administration's terms for the guarantees into the foreign-aid bill, thus probably losing the support of many Senators, or ignore the President. Mr. Bush told Mr. Leahy today that he would veto the foreign-aid bill if his terms were not met, officials said.

President Bush, in a brief news conference before meeting with Mr. Leahy and Senator Robert W. Kasten Jr., Republican of Wisconsin and a co-author of the compromise proposal, said he was still prepared to see the loan guarantees go forward but only on terms consistent with the Adminstration's long-standing opposition to the new construction.

But he added: "We have a longstanding policy that feels that settlements are counterproductive to peace. This is not a new policy. This is a longstanding policy, and I am determined to see that that policy not be altered. However, if there's room within that policy to do what we'd like to do, which is to support the people coming home, we'd like to do that. So we'll just have to wait and see."

Israel sought the guarantees to help raise money to resettle immigrants from the former Soviet Union.

A senior Israeli official said this evening that his Government would probably turn to Wall Street to raise the capital. But he acknowledged that without Washington's backing, Israel would not be able to raise anything like $10 billion, certainly not on favorable terms.

Officials say the Administration's position had been worked out by Mr. Bush, Secretary of State James A. Baker 3d and the national security adviser, Brent Scowcroft, who were united in resisting any suggestions about softening the restrictions. Terms of Senate Compromise

Senator Leahy expressed exasperation with the Administration. He argued that by settling aside only several hundred million dollars for loan guarantees this year, the President could have had a deal that would have given him more Congressional support to restrict settlement activity than any American President in history.

The Kasten-Leahy compromise would grant Israel $1 billion in loan guarantees immediately, without any link to a freeze on settlements, and give the President the authority to approve or disapprove the remaining $9 billion on his conditions.

The initial $1 billion guarantee would be reduced by $200 million, which is what Israel is deemed to be spending on settlements this year. The Kasten-Leahy proposal also contains certain exemptions for construction related to security, for items like roads and utilities that would be shared by Jews and Arabs and for a very limited amount of natural growth in population, for example, for families expanding homes to accommodate relatives. Future Role of President

The approval of the remaining $9 billion would be at the discretion of the President, who could set his own terms. But Administration officials said that under the Kasten-Leahy proposal, Israel would be able to go on building significant housing in the occupied territories for at least another year, and that this could drive the Palestinians from the peace table.

Secretary of Housing and Urban Development Jack Kemp, speaking to a gathering of the United Jewish Appeal in Washington, urged the President to approve the loan guarantees without trying to freeze settlements.

"It is a humanitarian cause, it is not a political cause," Mr. Kemp said, referring to the fact that the loan guarantees would be used to absorb immigrants. No Withdrawal, Rabin Says

Also addressing the U.J.A., the Israeli Labor Party leader, Yitzhak Rabin, made clear that he would not be willing to withdraw to Israel's pre-1967 borders. Mr. Rabin has said that he would stop building so-called political settlements in heavily populated Arab areas, but even he would insist on Israel's right to continue building setttlements for security reasons.

"I'll never, I'll never agree to any peace if it will be preconditioned on withdrawal to the pre-67 lines," he said.

With American loan guarantees, Israel could go to private banks and Wall Street and raise the $10 billion at lower interest rates. Israel alone would be responsible for paying back all of the money. The United States would have to set aside several hundred million dollars in case of an Israeli default. Israel has offered to supply the funds for that set-aside, which is calculated by the Office of Management and Budget, provided the amount is reasonable.